Everything We Need to Know About Netflix’s Plans, Plots and Schemes

We’re talking world domination here, gang. Of the entertainment world anyway. Waaay cool.

Bwaahh!

Long-Term View

“Look at the bigger picture”- Francis Underwood, House of Cards.

Summary

Over the coming decades and across the world, Internet TV will replace linear TV.

Apps will replace channels, remote controls will disappear, and screens will proliferate.

As Internet TV grows from millions to billions, Netflix, HBO, and ESPN are leading the way.

Linear TV is popular and ripe for replacement

People love TV content, and we watch over a billion hours a day of linear TV.

But people don’t love the linear TV experience where channels1 present programs at particular times on non-portable screens with complicated remote controls. Consumers click through a grid to choose something to watch. DVRs and VOD add an on-demand layer at the cost of storage and increased complexity. Finding good things to watch isn’t easy or enjoyable. While hugely popular, the linear TV channel model is ripe for replacement.

The evolution to Internet TV apps is already starting

In addition to Netflix, most of the world’s leading linear TV networks are moving into Internet TV. The WatchESPN app runs on many Internet platforms and is specifically designed to showcase sports. ESPN will keep improving their app to try to stay ahead of MLB.tv, which is another terrific Internet TV sports app. The HBO GO app makes HBO’s films and series much more accessible than on HBO’s linear channel. The BBC iPlayer app in the UK provides a rich and popular on-demand interface for a wide range of BBC programming. The other major linear networks are not far behind.

While Internet TV is only a very small percent of video viewing today, we think it will grow every year because:

The Internet will get faster, more reliable and more available;

Smart TV sales will increase and eventually every TV will have Wifi and apps;

Smart TV adapters (Roku, AppleTV, etc.) will get less expensive and better;

Tablet and smartphone viewing will increase;

Tablets and smartphones will be used as touch interfaces for Internet TV;

Eventually, as linear TV is viewed less, the spectrum it now uses on cable and fiber will be reallocated to expanding data transmission. Satellite TV subscribers will be fewer, and mostly be in places where high-speed Internet (cable or fiber) is not available. The importance of high-speed Internet will increase.

This transformation is occurring at different speeds in different nations. In the UK, for example, the BBC is already starting to program more for its iPlayer app than for its linear channels, given the large and growing viewing on the iPlayer.

For most existing networks, this economic transition will occur through TV Everywhere. If a consumer continues to subscribe to linear TV from a multi-channel video program distributor (MVPD), they get a password to use the Internet apps for the networks they subscribe to on linear. The more networks successfully keep their prime-time programming behind this authentication wall, the less “cord cutting” will occur. The same consumer who today finds it worthwhile to pay for a linear TV package will likely pay for a “linear plus apps” package.

Existing networks, such as ESPN and HBO, that offer amazing apps will get more viewing than in the past, and be more valuable. Existing networks that fail to develop first-class apps will lose viewing and revenue.

In addition to the linear networks building apps, some large MVPDs will do their own multi-channel app for viewing all of the networks they carry. Examples are Xfinity, Sky Go, and Horizon. These will win viewing also, by offering a great Internet on-demand experience on multiple screens. So far, the individual network apps (HBO GO, etc) are ahead of the MVPD apps because consumers relate to the network brands, and the apps are tailored to the specific content type. The competition for Internet TV viewing, however, is just beginning.

Internet TV apps will improve just like the mobile phone

Twenty years ago, the mobile phone was quite large, expensive, limited to voice communication, suffered static and was trivial to eavesdrop on. It was hard then to imagine that by now, there would be 6 billion active mobile phones in the world, central to so many of our lives. We see a parallel in the rise and intertwined improvement of Internet TV apps, broadband, and devices over the next 20 years.

Internet-native new entrants

In addition to creating opportunity for linear networks, the emergence of Internet TV also enables new apps like Netflix, YouTube, MLB.tv, and iTunes to build large-scale direct-to-consumer services that are independent of the traditional MVPD bundle.

Netflix competes for entertainment time with traditional networks, but the scope of such time is quite large. Consumer time devoted to web browsing and video games, for instance, has expanded hugely over the last two decades without a corresponding diminution of TV viewing. Another example is that when AMC produces great shows, it does not noticeably shrink the audience for HBO. As our service has become very popular, there has been no discernible decline in domestic MVPD viewing, according to Nielsen.

Netflix singular focus

Simplicity is at our core.

We are commercial-free unlimited-viewing subscription TV. We don’t have pay-per-view and we don’t have advertisements. Those are fine business models that other brands do well. We choose to be the best at our model, and to have our brand stand for commercial-free, unlimited viewing, low flat monthly fee.

We don’t and can’t compete on breadth with Comcast, Sky, Amazon, Apple, Microsoft, Sony, or Google. For us to be hugely successful we have to be a focused passion brand. Starbucks, not 7-Eleven. Southwest, not United. HBO, not Dish.

We are not a generic “video” company that streams all types of video such as news, user-generated, sports, music video, or reality. We are movies and TV shows2.

We are counter-positioned against the hassles, complexity, and frustration that embodies most MVPD relationships with their customers. We strive to be extremely straightforward and simple. There is no better embodiment of this than our no-hassle online cancellation. Members can leave when they want and come back when they want.

We are about the freedom of on-demand and the fun of indulgent viewing. We are about the flexibility of any screen anywhere any time. We are about fantastic content that is increasingly only available on Netflix.

We spend over $450M per year on global marketing to attract people to try Netflix, and to reinforce with our members why Netflix is worthy. Our extensive content is key, as is the ability for members to have control over their viewing experience.